tv Bloomberg Bottom Line Bloomberg July 15, 2014 2:00pm-3:01pm EDT
>> i am mark crumpton. this is bottom line, the intersection of business and economics with a main street janet yellen says monetary stimulus shall continue. johnsonside johnson & for a live interview with the cfo. and a massive telescope takes us to infinity and beyond. to our viewers here in the united states and those of you joining us from around the world, welcome. we have full coverage of the stocks and the stories making headlines today. theoomberg exclusive --
u.s. presses eu envoys for additional sanctions against russia. we begin with peter cook on capitol hill. day one of bed chair janet to congress.rt >> janet yellen was speaking in front of the senate banking committee. her message -- the fed mission is not accomplished, despite an economy.nt in the u.s. the drop we have seen recently in unemployment -- the fed cannot start removing all its stimulus. next the economy continues to improve. the recovery is not yet complete. the high degree of monetary policy accommodation remains appropriate. >> specific areas of concern over the course of her testimony -- continuing slack in the labor market. she pointed to the low participation rate. growth.ted to slow wage
she said on the housing front there has been little recent progress. likely can now plan most to end its bond buying program altogether in october, as expected. was pressed on exactly when the fed would raise interest rates, and was noncommittal beyond saying almost everyone at the fed thinks rates will start to rise sometime next year. formula, ando there is no mechanical answer i can give you about when the first rate increase will occur. it will depend on the progress of the economy, and how we assess it based on a variety of indicators. a point of saying, through the course of her testimony, that the fed would be to some extent gun shy, cautious about moving too quickly, because of the false dawns, signs of of them is him that had not played out. they want to be sure the economy
has turned a corner before they had the liftoff on interest rates. she was questions through the pluse of three hours, two hours. nobody pressure on the notion that the red is behind the curve on inflation. in the market, no one questioned janet yellen. of theid seem members senate banking committee were more interested in regulatory issues. focus did shift to regulatory matters. there was a discussion about regulatory moves the fed has a pretty heated exchange toward the end of the testimony between elizabeth warren and janet yellen over the living will at big banks have to deliver, some questions about whether the rules submitted by big banks were up to the task. were they credible enough? janet yellen suggesting the fed has been working with the banks.
some disagreement on what exactly has been produced so far. >> washington correspondent peter cook, joining us from capitol hill. the fed chair's goal is to convey information without roiling financial markets. michael mckee is here to tell us whether dr. yellen accomplished that today. >> she did not roil markets, but there was little expectation that she would. fed has said, janet yellen has said, for quite some time now. feeling they have not a compost their goals as far as unemployment and inflation are concerned, although some members of the fed think they are getting close. they are going to continue with the taper. they will start thinking in the fall about when they will start raising rates, but no time soon. >> tomorrow, dr. yellen goes before the house financial services committee. are we expecting anything different?
>> there is a proposal in the impose a rule on the fed, and audit on steroids. they would have to follow the taylor rule in setting monetary policy. janet yellen said that would have been a disaster in 2008, when the economy was falling off the cliff. the taylor rule would have required them to raise interest rates. some members of the house are likely to ask her about that tomorrow. wexler was a little bit of wiggle room, some movement today, at least some of it. about financial stability. in her statement, janet yellen suggested, we do not have a problem right now. she said valuation measures were generally at levels not far above historical averages. in aggregate, investors are not optimistic regarding equities. the supplement they put out with this hearing, on page 20, or is
a line buried in there that says valuation metrics in some sectors do appear substantially stretched, particularly for smaller firms in the social media and biotech industries. what happened when investors got wind of that word? stocks fell. facebook, yelp, linked him, a bunch of others went down on the day. yelp in particular taking a hit. biotech firms taking a hit on the day. amgen. as we alluded to, more on the yellen testimony. view enter bidder will join us from boston. that is in about 10 minutes, right here on bottom line. betweenthe fighting israel and hamas. , last night it looked like there might be a cease-fire
between israel and thomas, but israel has resumed airstrikes. what happened? truce had been accepted by israel's security cabinet, and was supposed to take effect the local time. gaza militants started firing rockets this morning, more than 100 so far. sources say a senior hum us officials said the proposal, creamy egypt had not consulted with them and the terms of the plan would have been a capitulation, and the whole deal was not worth the ink it was written with. hamas seems to be holding out for better cease-fire conditions. officials say they want tangible benefits. that means, among other things, a reopening of the border blockade that has been enforced onh by israel and by egypt gaza. egypt leadership today is not the same leadership that brokered the last cease-fire to
end the previous war between israel and gaza in november 2012. right now, we have lcc -- lcc -- isi in charge, and military leader. afore, it was morsi, brotherhood leader. israeli leaders say the military has a plan to ramp up the offensive, including a possible ground operation. the death toll is horrible, around 200 palestinians killed, more than 1000 injured, thousands displaced from their homes. today, the reports of a first israeli killed by rocket fire, a volunteer passing out food two israeli soldiers. backdrop ofrom the the collapse of u.s. brokered peace talks. >> the white house is calling ambassadors from european union countries, a meeting ahead of the leaders summit tomorrow. what is the point of that meeting?
>> we found out all 28 eu ambassadors were called in to the white house. they were given a briefing by deputy national security advisers, who first of all clued them in on all the intelligence the u.s. has now about russia continuing to apply -- supply heavy weaponry to the pro-russian separatists in eastern ukraine, and really pressed them hard for the eee you -- the eu to take tougher steps at the summit happening tomorrow in brussels. that is the first opportunity the eu will have to look at broader sanctions, which the u.s. keeps talking about, and which the eu has backed off from . , to say,a mission there are things we would like you to do, such as cutting off access to debt markets, cutting off military sales from the eu to russia. we are talking about the big french deal, the helicopter carriers. rrie a. we also have a situation where
the u.s. is potentially going to alone. >> will the eu impose tougher sanctions tomorrow? if they do not, will the u.s. take unilateral action? >> it is not clear the eu would be willing to go with really tough sanctions tomorrow, as there are a lot of divisions within the 28 countries. the voice from angela merkel, the german chancellor, was that she does not want to prejudge what is going to happen tomorrow, because not everyone has been cleared in yet. there is a possibility the u.s. could go along with some of the same measures that have talked about, that they want the europeans to do. >> john kerry is on a plane from vienna, but without an iranian nuclear deal. will they get an agreement this time? >> secretary kerry is coming back empty-handed.
he said serious gaps remain and they were not able to get a deal. it may be hard to get one before the july 20 deadline. i do not think we will see a complete collapse of talks. i think we might see an extension. those who want a lifting of international sanctions might pull out some concessions so we see some sort of a deal. i will keep you posted from vienna. thank you. coming up, more on janet yellen's testimony today. we will take a closer look at why she thinks the u.s. economy still needs fed support. stay with us. ♪
testimony before the senate banking committee today. i am joined by a professor of global finance at brandeis university. the professor studied undergraduate economics with fed chair yellen and work at the federal reserve board of governors. welcome back to "bottom line." it is good to see you again. chair yellen told lawmakers continued monetary stimulus is needed because of what she called "significant slack in the labor market," am none inflation rate that is still below the fed's goal. can the economy stand on its own? >> i think there are a number of reasons why the federal reserve has moved to basically continue its bond buying program. they are looking at a labor market that still is not back to where it should be. they are looking at long-term unemployed that is higher than it has traditionally been. they are looking at wages that -- they are looking at the wages and say they are rising too fast. the fed is behind the curve.
the labor share in the economy is still way below where it should be in order for us to generate gdp growth of greater than 2%. the reason they are still in the business of buying bonds -- they are not tapering them. the economy really has not 2.25% out of the doldrums. u.s. economy must be on solid footing, she said. how would you define solid footing? footing is broad based across the range of categories we usually see -- verbal goods, nondurable goods and this is. toht now, from one quarter the next, you see some strengths and nondurable's, some strengths and services. that durables are still dead in the water. you can see that in the pce.
imports.ee it in another key aspect of the economy that continues to be extremely weak is capital spending, non-structure capital spending. business continues to sit on the sideline. you see that in terms of not too much wage inflation. you see that in more robust hiring, but not across the board. and fundamentally very little in terms of cap x. until you see that, we are not going to be on a strong growth path. >> chair yellen also played down a recent deceleration in inflation. i'm sorry. can you hear me? i think we have lost dr. ma'am -- dr. mann. we will be back with catherine man in just a moment. ♪
>> we have some technical problems taken care of. ,e are back with catherine mann a professor at brandeis university. for we got cut off, chair yellen a recentplayed acceleration in inflation. it is still below the fed target of 2%. prices were up 1.8% through may. what about the concern expressed by the fed presidents of st. louis and philadelphia that fed stimulus could push inflation above the 2% threshold? >> we have to remember that the 2% threshold has a plus or minus, a standard deviation round it. we have been below the threshold for an extended time. imagine, in order to
balance that out, being a little bit above the threshold would be the right way to be. remember, actually a threshold was the vocabulary word they used for unemployment rate, whereas target is the word they tend to use for inflation. a target, you can miss it on the downside, you can miss it on the upside. you can still be around the target. people view aof little bit above the 2% as perfectly reasonable, and supportive of the economy going forward. >> how will the fed be able to wind down the $4.5 trillion balance sheet without sending tremors throughout the global economy? >> that is a challenge. i think the language we have is that they are going to let it run off. they are not going to pursue bond selling programs. certainly not in the housing market. in her speech, she pointed out
that in her view, a housing market has not recovered, the promising feature of it earlier this year had not been continued. they are certainly not going to sellinge business of the u.s. treasuries off the balance sheet, because there is a lot of potential problems in the u.s. treasury market, should they do that. i woulde already, argue, disrupted the u.s. treasury market, in terms of both the auctions and the secondary market. they are just going to have to sit on a very large balance sheet. if they do not change it too much, they are ok. >> i would like to circle back to interest rates for a moment. how much pressure or fed officials under to accelerate that timetable, given the fact that the unemployment rate has declined faster than expected? >> i think the unemployment rate component of their three targets or thresholds -- unemployment,
gdp growth, and inflation are the three main macroeconomic indicators they look at. surprisingly, the unemployment rate is the one that has, in some sense -- they have gotten to their target or threshold the quickest. target that is kind of least likely to be the one that a monetary policy authority should focus on. and gdp are traditionally the ones that have been the focus of the federal reserve. the unemployment rate is the one they have added. they have backpedaled a lot from the threshold they put out there. making the nuance on the long-term unemployed, making the nuance on behalf of really sustained wage increases, it would be the underpinnings of the inflation concerns -- my view is that the unemployment rate is a great concern for them. their unemployment threshold is not. about a minute left. i would like to follow up on that.
as i mentioned at the start of the interview, you studied undergraduate economics with janet yellen, and your phd advisor was stanley fischer, now the fed vice chair. are their views on how unemployment determines the course of monetary policy -- are they still in sync? >> absolutely. both of them have a very strong background in how labor markets affect the conduct of economic performance, where that is both inflation and output growth. they are both absolutely in sync on these issues, with regard to the natureyment and of unemployment -- because that is a key component of it right now. the nature of unemployment affects wages. it is across a broad set of wages, not just one little sector or one group of people. they are very much in sync. i do not see a lot of daylight between the two of them around the table. >> catherine man, professor of
global finance at international business school of brandeis university. thank you for your time and your patience. we appreciate it. >> have a good day. >> janet yellen continues her semiannual testimony tomorrow before the house financial services committee. live coverage starting at 10:00 new york time on "market makers." bloomberg is on the markets. olivia sterns is back in new york and has the details. >> let us show you where the equity markets are trading. stocks were higher this morning. as janet yellen spoke, we started to see a selloff. the broader benchmark index is in the red. you are looking at the big merger of the day, reynolds agreeing to buy lorillard in a deal that would consolidate the u.s. tobacco industry into just two major companies, a tobacco duopoly. reynolds, which makes camel cigarettes, has agreed to a value of just under $69 per
>> welcome back to the second half-hour of "bottom line." nasty thunderstorm coming to new york right now. time for the commodities report. su keenan joins us from the newsroom with the details. >> below 100 for the first time since may. a decline on reduced fears about supply disruption. were consumers, added benefits being felt through lower pump prices at the gas station.
m energy-related hedge fund. there may be trouble handling the surge in limited oil production. there have been concerns about insufficient supply, and it may turn into an oversupply situation. prices have been on a steady drop.e, accelerating the heading to the close, we have seen the losses paired. oil fell to a low of about 99 before gaining back ground. collapsed."has just says there is no particular headline 2.2 to kick this off. he also said we do not rebound soon and do not close above 100 -- you could see a further decline.
gas is steadily dropping to the lowest in three months. continue, because the drop in retail lags the drop in futures. the national average for home prices is expected to fall below $.50. not exactly christmas -- fall , not exactly christmas in july, but we will take it. >> another decline in gold? explain it on janet yellen. causing thes are rally in the dollar and a selloff in gold. stimulus, with the slack remaining in the labor markets -- clearly reducing safe haven demand for gold. it could ease concern about portugal. gold reduced earlier losses, but we are seeing a close below 1300. palladiumatinum, and are along for the ride. goldman sachs reiterated its very shout look for gold. bearish outlook for
gold. >> aerial attacks on gaza from israel, following the collapse of a cease-fire brokered by egypt. we spoke with the founder of jerusalem venture partners, and opposition member of the knesset. they discuss the impact of the fighting on doing business in israel. >> it is not easy, but one has to remember the industry would build in the last 20 years, we build with 2 intifada was cover a war in gaza, a war in lebanon, 2 wars in the gulf. we israelis usually do things under stress here in the region. things under to do a much more peaceful environment, and we hope we will get there. that probably means a little bit of different leadership. i think we can expect the cyber security effort in the south to be one of the hubs in the world for this.
we can expect israel to be doing new things that combine agriculture, technology, and high-tech. fromn expect new things israel. israelis are looking for the new challenge. biggest competitive challenges is, we have a small domestic market. we create many multinationals. the israeli startup, israeli companies are international. u.s., first in the in europe, first in asia and south america, and now in africa. the only region we are not selling in a big way is the middle east. maybe that will change in the next few years as well. >> what are they mainly looking at right now? do you see as the hottest areas in israeli
high-tech? >> cyber security is one of them. israel is helping the world shield itself from the attacks, not only on large companies, but banking companies, the airlines. a lot of civilians who felt safe are feeling threatened. -- israel has gone into the application level as well. it is combining the engineers with some of the other creative disciplines that israelis are strong in. the film industry, the content industry, was primarily done for the domestic market. the content industry in israel becomes international and joins the engineers in an international effort. i think the new frontier in the world is taking food into a different level. just like we have drugs that your you, we will have medical
food that could be regulated next to the fda, and will help you live better, longer, and maybe prevent the need to go to the hospital or to take a real drug, just by eating better, and just by doing the research you need in order to have better technology in that sense. founder of jerusalem venture partners, with the bloomberg middle east editor. up next, the latin america report. following team brazil's disappointing showing in the world cup. ♪
>> nasa's flying observatory lets the scientist reach the edge of the atmosphere to look at the stars. the highly modified 747 carries thattra-powerful telescope captures images neither satellites in space nor telescopes on the ground can get. the program is almost asked, due to cuts in nasa's budget, but was salvaged by a $70 million house allocation. here is a look. ♪ ♪
it is time now for today's latin america report. bric nationsof the are meaning in brazil. india, brazil, and south africa conveyed in closed session this morning. they signed an agreement focusing on trade and business. the creation of the fund is the highlight of the meeting. it is called the new development bank. other countries may later join it. countries have yet to decide where it will be based or who will lead it. fallout from brazil's world cup humiliation. the coach of the brazilian national team has resigned. national soccer federation's president said the resignation of soria -- scholari and his staff was accepted. they news conference is scheduled for thursday. up next, we will be back with a
>> today, johnson & johnson beat analyst estimates in the second quarter. carol massar is at the company store add headquarters in new brunswick, new jersey. we are going to try to make it through before this storm comes back. >> keeping my fingers crossed. the storms are crazy. i am here with dominic caruso, chief financial officer at johnson & johnson. inc. you for inviting us in. the day for you guys. you beat on the top and bottom lines. you boosted your forecast. disappointing, the stock dip? >> we are proud of the earnings we delivered. good, strong topline growth. of noise a little bit
about our guidance being somewhat conservative. i would like to call it couldn't. i think we are open with the investment community about what we see going forward. we discussed how we plan to invest in the future. i think that is wise for us to do. it's prudent is different from conservative. and it yellen talked about labor slack. yellen talked about labor slack. what is your assessment of the global economy? >> it is improving, but very slowly. i think emerging markets are going faster than developed markets. they are not growing at the rates we expected a few years ago. far, global growth is relatively slow, but steady, the way i would characterize it. >> how do you account for the differences in both rates between major different sizes? pharmaceuticals, 21% revenue growth. if you look at the consumer area
devices 1.4% -- how do you account for those differences? >> the pharmaceutical business is primarily driven by a series of new product launches. great for patients. we have lost 14 new product since 2009. that business is growing at extraordinary rates. quarter, driven by a very successful new hepatitis c compound. bill double-digit growth, just over 10%. ovations. pharmaceuticals basically driving that business. it is about 3.5% this quarter. we did divest the number of tail in the consumer business. without those divestitures, which depressed earnings, consumer could grow at about 6%. >> would you like to see more? >> we are never satisfied.
we are happy with the consumer business, but never satisfied. we are the largest medical device business in the industry. >> it is hard to move the needle. , when overall utilization rates and health-care are relatively flat, or declining, as they have been for many quarters now. the good news is that being the largest, having the innovations we have -- once utilization trends start to improve, we are very well positioned for growth in that market. >> when you look at medical devices, in terms of trend lines, you talked about not great trendlines for a few quarters. maybe this business does not make sense to be in. >> not at all do we say that. we make portfolio choices about which businesses with an pharmaceuticals or consumer we should be in. we have made decisions. we divested a diagnostic business.
we doubled down or invested heavily in the orthopedics business. we believe that surgery and orthopedics are very attractive markets within medical devices. we are the largest player in both those markets and are happy . >> and you want to stay there. >> you mentioned the ortho divestiture. you guys are boosting buybacks. why is it the best use of that money? >> there is a couple of reasons. the clinical diagnostic business was a contributor to earnings. without the earnings contributing, rather than put pressure on the rest of the businesses, we are able to buy back shares with strong cash flows. the second reason is, we believe in our company. we are happy. >> have you considered boosting the dividend? you guys have a good track history. >> we have a 52 year track record, a dividend rate comparable to our peers.
it is much higher than the overall s&p 500. we think the dividend as we have it structured is a rare return to shareholders. >> when you talk about the consumer business and medical devices, is it tied to economic growth, in terms of health care changes? >> i think it is about consumer attitudes, as well as disposable income. >> you are still recovering. >> we are still recovering from that. i think the team has done a fabulous job of getting us recovered from that time. medical devices -- it is health care utilization trends, which are both a reflection of the economy as well as new circumstances or dynamics in health care, for example, higher deductible plans, shifting more of the cost to employees. that is another factor along with the economy that keeps medical utilization rates down. >> dominic, thank you so much. wait to have you here.
means bloomberg television is on the markets. we head into the close of the session. stocks have been fluctuating between gains and losses. he started in the green, but equity benchmark indexes fell into the red as the fed chief spoke and signaled that she sees significant slack in the labor market and a high degree of accommodation remains warranted. we also got better than expected corporate results early this morning. from jp morgan and goldman sachs. we are also watching currency markets today. the dollar surged against almost all other peers after yellen pushed the need for a high degree of monetary policy accommodation. john covers the forex world for bloomberg news. a lot of dovish comments from yellen, saying the economic outlook is very uncertain, and the gdp forecasters have gotten
it wrong in the past. why did we see the dollar rallied anyway? >> i asked someone at deutsche bank, and he said he focused on one of the lines in her speech. she said interest rates could rise sooner than expected if economic data continued to improve, if the surprises continue, meaning they have been surprised, meaning we need more continuation of that. he said they have been wrong perhaps on the economic forecasts, but their unemployment forecasts have been a little bearish. improved a little faster than expected, at least on some measures. that is, to him, one of the most telling things on a macro level. he said it seemed markets were focused on that. >> she said she was concerned about the long-term unemployed. there is nothing monetary policy can really do. what are people saying more
generally about the dollar? it has had a good few weeks, few months. like they do not seem to be giving up on it. it was a favorite trade going into the year. strategists kind of had to readjust. they are expecting it to get stronger by the end of the year. our median forecast has the dollar index getting about 4% stronger by the end of the year. >> what about the pound? i just got back from london. i was therefore two months. i think i saw the sterling rally about 10%. ?hat is driving the rally >> as you were saying, the dollar is stronger against almost everything, but the pound is the outlier. it looks like they are potentially out in front of the fed. islooks like bank of england there as well.
it looks like a favorite trade. traders like teachers are the most bullish since about 2007. >> it is hard to find. what are some of the risks? into the same issue. people have gotten bullish on the pound. a's rally is not a secret. potential referendum that is coming up. the polls apparently are consistently signaling that scotland stays in the u.k. -- >> but not in a large margin. interesting to see what happens. thank you so much. are going to be on the markets again in 30 minutes. ♪
>> the dow briefly hit another record high, but investors are not quite sure what to think citesjanet yellen concerns about valuations. should you be concerned as well? i am trish regan. "street smart" starts right now. welcome to the most important hour of the session. today on street smart, bloomberg has learned jo